Urban fiscal stress: Is it inevitable?;

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Urban fiscal stress: Is i t inevitable?
That younger cities also have lower
private investment may be due to the
fact that such investment is just
building up. Therefore, to establish
the relative industrial age, each city
was classified on the chart according
to both its recent population growth
or decline and the change in
manufacturing employment.
Then, for each grouping of cities in
the chart, the mean values for each
financial variable were arrayed
against the social, economic, and
structural groupings. Analyzing the
chart on page 16 enables the reader
to determine:
—What economic, social, and struc­tural
conditions are associated
with cities showing fiscal strength
or stress?
—What cause and effect relation­ships
might exist between varia­bles?
The chart provides a statistical
base for the different financial condi­tions
that occur under different
social, economic, and structural con­ditions.
For example, as population ceases
to grow, or even declines, the de­mand
for social services increases.
Note the difference in current operat­ing
expenses between mature and
young cities: the group containing
Hartford and Buffalo—both mature
cities —has mean expenses of
$618.21, while the group containing
Topeka and Little Rock—both young
cities—has a mean of $416.89.
As services increase, so does the
municipal workforce —sometimes
growing three or more times the size
of that in younger cities. For exam­ple,
in an older city such as New
Haven, the municipal employment
rate is 7 percent of the city's total
employment, while that of Omaha
and Grand Rapids is but 2.5 percent.
To support these services, greater
demands are placed on the city's
financial resource base. Thus, the rise
in federal and state aid. Note also
the higher taxes as a percent of
personal income, up to 8.5 percent
for the likes of Trenton and Buffalo,
compared to 3.8 percent for such
younger cities as Jacksonville and
Indianapolis. Moreover, as cities
reach maturity in the aging process,
growth in state and federal aid does
not keep up with cost growth rates.
Therefore, the local tax base is often
raised at a rapidly increasing rate to
meet rising costs.
One problem in analyzing city
financial status is the lack of general­ly
accepted financial performance
standards.
In the private sector, there are
accepted financial ratios and levels
for debt, liquidity, and the like. Such
standards are generally set as the
normal performance for each indus­try.
A given company can easily be
measured against these norms to
determine its relative strength. No
such measures, however, have been
established for the public sector.
Therefore, the research team com­piled
both the average values and
the highest values for the financial
variables shown in the chart on page
16. These upper values provided a
benchmark against which each city
could be evaluated. Of course, these
upper values are not static. Such
factors as public attitudes and na­tional
economic conditions con­tinually
change.
By analyzing the information on
the chart, along with numerous
other tests, researchers were able to
link financial performance to
changes in non-financial (social, eco-
THE FOUR VARIABLES
FINANCIAL VARIABLES Low value High value
Revenue:
Local tax effort 3.83% 8.55%
Local taxes per capita $181.41 $360.00
Percent of intergovern­mental
revenue 30.00% 43.00%
Debt:
Total debt per capita $341.02 $690.38
Interest per capita $15.10 $33.88
Municipal capital spending
per capita five-year
average, 1971-75 $40.88 $120.09
Expense:
Fire expenses per capita $17.17 $46.50
Education expenses
per capita $196.79 $281.73
Health expenses per capita .. $3.57 $15.82
Welfare expenses per capita .. $60.00 $24.58
City full-time-equivalent
employment/total
city employment 2.27% 6.96%
Average city wages $6,694.00 $9,292.00
Net operating expenses
per capita $416.89 $618.21
ECONOMIC VARIABLES:
Change in population
Percent change in single family housing starts
Manufacturing capital spending
Change in manufacturing employment ratio
Percent change in manufacturing capital spending
Median family income
SOCIAL VARIABLES:
Percent minority population
Percent families below low income level
Unemployment rate
Percent pre-1939 housing stock
STRUCTURAL VARIABLE:
Population density
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